The Gated City, chapter 1

This month I'm reading Ryan Avent's The Gated City. He writes for The Economist and recently had two excellent blogs on geographical economics:

Moving towards stagnation
Moving towards stagnation, continued

The Gated City is a Kindle Single in which Mr Avent argues that “Our cities are where most of us live, where most of our economic output is produced, and where most of the ideas that enrich our lives originate. When they function well, the act as engines of discovery and opportunity. When they do not, the economy suffers, and the labour force with it”.

Something has gone wrong:

He starts with the concerns about the U.S. economy: slower growth and rising inequality. He also briefly outlines some of the explanations:

• Worker bargaining power has declined (Krugman)
• The demand for skills has shifted (Autor)
• The education system has not been successful at increasing educational attainment (Katz & Goldin)
• The emerging world is catching up
• The low-hanging fruit of available land, uneducated population and revolutionary technological innovations are gone and growth has slowed (Cowen).

Mr Avent agrees that there is some truth to all these explanations, but wants to add another: “That America has made its productive locations ever less accessible. The best opportunities are found in one place, and for some reason most Americans are opting to live in another”.

He argues this point by highlighting the productivity of cities, but notes that cities are often reined in “because we worry that urban growth will be unpleasant”. His example is of the San Francisco Bay area, which, despite wonderful climate, culture, innovation and much higher than average wages, have lost residents, while places like Phoenix, Arizona have been growing. This is ascribed to differences in the cost of living, specifically housing. It is a question of supply not meeting demand in the right places and it is often caused by residents who oppose development because they want to “protect neighbourhoods, views and buildings they love from changes they fear”. This, Not-In-My-Back-Yard view has significant consequences.

Mr Avent estimates that migration from costly cities to affordable but less productive ones overthe period 2000 to 2009 may have cost the American economy between 0.25% and 0.5% of GDP per year. Adding the effect of lost innovation of growth, new firm creation and employment, the cost may be trillions in lost output.

And here is some local flavour:

Drawing this line of work closer to a South African home, the first thing to note is that there are few studies that take this spatial approach to growth or the labour market. The notable exceptions come from Naude (2008)** and Haveman & Kearney (2010)*.

Naudé (2008) examined the possibility of a spatial mismatch in the metropolitan labour market as an explanation of the differences in unemployment rates between the white and black populations.  He used data from the 1996 and 2001 censuses and employed various methods measuring the extent of suburbanisation of the population and employment, examining the relationship between residential segregation and unemployment, analysing commuting distances and taking into account differences in earnings and education.  The results showed that there exists a spatial mismatch between jobs and jobseekers and that distance from the city centre plays a significant role as a predictor of black unemployment.

The most recent contribution comes from Havemann and Kearney (2010) who argue that where you live matters.  They used 2001 census data to construct an urbanisation index at district council level and used it along with a range of individual-specific predictors of employment from the Labour Force Survey of March 2005.  The results show a positive relationship between urbanisation and the probability of being employed.  For example, someone in Johannesburg is 1.5 times more likely to be employed than a similar individual in a medium-sized town.

* HAVEMANN, R. & KEARNEY, M.  2010.  Where you live matters: Urbanisation and labour market outcomes.  Economic Research Southern Africa, Policy Paper Number 17.

** NAUDé, W.A.  2008.  Is there a spatial mismatch in South Africa’s metropolitan labour market?  Cities, 25: 268-276.

The aim of this blog is to write more about these issues. I am going to keep reading The Gated City and adding some SA flavour. Stay tuned...